The Best Investment on Earth is Earth

Over the past few years, the real estate market in India has been evolving rapidly. It has witnessed both flux as well as growth, and the same is expected in 2019 as well. This is due to numerous reforms that have been introduced by the government. The changes have been in tax, business environment as well as regulatory framework. Over the past couple of years, India has jumped a significant 52 positions in the Ease of Doing Business rankings released by the World Bank. This was mainly due to improvements in 6 of the 10 categories assessed by the World Bank. Out of these six, dealing with construction permits showed a massive jump due to the government’s policy reform.

There is also increased transparency and accountability in the Indian real estate market which has caught the eye of institutional investors as well, who are now evaluating the sector with renewed enthusiasm. The Real Estate Investment Trusts (REITs) are also expected to take shape soon and help improve cash flows into the sector. Here are some expected trends for Indian real estate market for 2019.

Sustained Demand For Office Space

Robust GDP growth is expected to fuel expansion and attract real estate investment. Office space absorption in 2018 has grown by a healthy 20 per cent since the last year. This is due to renewed interest from banking tenants and expanding IT companies. This trend is expected to continue in 2019 as well.

Rise Of Co-Working Office Culture

The entrepreneurial ecosystem in India has been growing continuously, and this has had a multiplier effect on several sectors, one of which is conventional office space. Over the past five years, the concept of co-working space has really caught on, and now has more than 200 players.

Alignment Of Supply Of Residential Units With Demand

The residential real estate market has been witnessing rising demand over the years. This is due to a growing population, rise of nuclear families, urbanisation and increasing disposable income. But due to a price mismatch, the sale figures haven’t seen much improvement. Real estate developers are trying hard to match the size of residential units to the budget of the end-users. Home buyers too are now more informed. The government’s push for affordable housing might see better traction in affordable housing segment.

Consolidation

There have been cases where small developers are reaching out the reputed ones to help them from financial mess and help complete pending projects. There have been a large number of joint developments, joint ventures and development management agreements between smaller and larger real estate developers, or landowners and developers, and this trend is expected to continue in 2019. Consolidation may not be limited to commercial and residential real estate developers either; it may also extend to co-working space operators.

Warehousing

With residential real estate not being able to match the price with the budget of the end-users and good quality office space in short supply, logistics is the sector that is attracting real estate investment. The introduction of GST has helped merge India’s 29 states into a single market. Also, there has been a structural shift in the logistics sector, with many small fragmented networks being joined into a large distribution chain that has centralised hubs. Growth of online shopping is another factor that is helping this sector grow.

Financial Stress

There has been an on-going crisis with NBFCs (non-banking financial companies), which has slowed down the distribution of funds for the commercial and residential real estate projects. With banks and NBFCs becoming cautious, real estate developers are finding it difficult to arrange funds for new products, and are being forced to opt for other financing routes. These routes often increase their cost of capital. If the ongoing crisis with banks and NBFCs is not resolved soon, the sector might need more time to recover.

The fate of the Indian real estate market is probably going to be decided post the general elections. The first half of 2019 is expected to be slow as most real estate developers would be slow on launches before the elections, and home buyers and investors are expected to adopt a wait-and-watch approach. But the first quarter also gives home buyers a chance to drive a hard bargain.